The Eurozone Crisis Is Over! ... Or Is It?

Multiple major agreements were reached in the struggle to stem the debt crisis in Europe last night.

"I'll make him an offer he can't refuse."-- Don Corleone, The Godfather

Were Angela Merkel and Nicolas Sarkozy taking a page out of The Godfather's book? To read some of the press reports about the Greek bond deal reached early this morning, it certainly sounds like it.

Private banks, represented by Charles Dallara of the lobbying group The Institute of International Finance, agreed to take a 50% "voluntary" writedown on their Greek bonds. Why would they agree to such a drastic cut? For one thing, there's reality -- it's been very obvious for a long time that given the financial state of Greece, the value of its paper isn't in shouting distance (or maybe even collect-calling distance) of face value. Maybe more important -- if you want to believe the Euro-leaders-as-Don-Corleone story -- European heads of state threatened that if banks didn't agree to the 50% cut, they'd let Greece follow a path to complete insolvency.

At that point it became a pretty simple math equation:

50% > something far closer to zero

In the aftermath of the global financial crisis, some may question how good bankers really are at even simple math, but this seemed to strike a chord.

It isn't just the Greek debt deal that has markets so excited today, though. In addition, eurozone leaders came to an agreement in principal on leveraging the European Financial Stability Facility by as much as 5 to 1. This was seen as a key step in the region's fight to head off its debt crisis because it will provide a huge amount of financial firepower to help bond buyers feel safe even as countries like Italy, Spain, and Portugal struggle to manage their balance sheets.

But wait, there's more! As if those two agreements weren't enough, the group also came to terms on a recapitalization of some of the region's biggest banks. The plan is to use some $150 billion to provide euro-area banks a stronger capital base and put them on firmer financial footing.

The agreement and your portfolioIf you've taken even a moment to peek at U.S. indices today, you know that you're happy about this agreement because U.S. markets are rallying. As of this writing, the Dow and the S&P 500 are up more than 2% each.

But why, specifically, should U.S. investors be happy about this?

Obviously if you hold almost any major European stock, you're seeing some serious pops in your portfolio. Spain's Telefonica(NYSE: TEF) is up 5%, Germany's Siemens is up more than 4%, and even lumbering ol' France Telecom has gained over 4%. Eurozone banks are flying even higher, with National Bank of Greece(NYSE: NBG) jumping more than 10%, Banco Santander(NYSE: STD) up more than 8%, and German giant Deutsche Bank leaping 16%.

But this hits closer to home as well, since many major S&P 500 and Dow components do very sizable chunks of business in Europe.

Company

Europe Revenue Share (2010)

Philip Morris International(NYSE: PM)

41%

McDonald's

40%

EMC(NYSE: EMC)

29%*

United Technologies(NYSE: UTX)

22%

Cisco(Nasdaq: CSCO)

20%

Source: S&P Capital IQ. *Europe, Middle East, and Africa.

At the same time, the European Union is a very important trading partner for the U.S. and a major export market. A healthy EU -- or at least one on a determined path to better health -- could be good news for the U.S. economy as a whole.

Source: U.S. Census Bureau.

The devil is in the detailsI hate to finish this rah-rah celebration by getting all realistic, but amid all of the agreeing that euro-area leaders and banks did last night, there was somebody conspicuously absent from the party. He's a little fellow we might call Mr. Details and he has a tendency to cause problems after big, headline-grabbing agreements are reached.

Whether we're talking about the Greek debt writedown, the leveraging of the EFSF, or the bank recaps, the agreements last night were largely in principle and the details will still need to be hammered out. This still provides plenty of room for the head-butting and political stalemates that have been a thorn in the side of this process to date.

Don't get me wrong, I'm no pessimist -- far from it. But for those with champagne glasses sky-high, I just think it may be better to take the good ol' "cautiously optimistic" approach rather than the "Justin Bieber fan club" approach when it comes to reacting to these new developments.